case 2.2 : facebook it's about the money

Facebook : It’s About The Money CASE 2.2

1 MBA_Batch2_UMK_Kch/M7/GST5803/Information System and E-Commerce/P14D397P

CASE STUDY 2.2

FACEBOOK: IT’S ABOUT THE MONEY

INTRODUCTION

Facebook, a company grew up from a small

network site to a $50 billion company, gets

almost all the revenue from advertising. The

only things Facebook has are the hundreds

millions accounts. Because of the large

database of customers, Facebook have so many

valuable details information for advertising, which make Facebook earn a lot. Also, Facebook

help people connect each other easily. However, this may not be good for Facebook user

because Facebook grab users information with or without users’ allowance, and these may

against users. Facebook wants users share more information so that they can earn more

money from advertising. There are no laws says social networks like Facebook should show

the users what do the network companies do.

Facebook was founded by 2004 by Harvard student Mark Zuckerberg and originally called

thefacebook. It was quickly successful on campus and expanded beyond Harvard into other

Ivy League schools. With the phenomenon growing in popularity, Zuckerberg enlisted two

other students, Duston Moskovitz and Chris Hughes, to assist. Within months, thefacebook

became a nationwide college networking website. Zuckerberg and Moskovitz left Harvard to

run thefacebook full time shortly after taking the site national. In August of 2005,

thefacebook was renamed Facebook, and the domain was purchased for a reported $200,000

US Dollars (USD). At that time, it was only available to schools, universities, organizations,



and companies within English speaking countries, but has since expanded to include anyone.

Facebook becomes more responsible about the data collection process. Then Facebook

invites scrutiny to deal with these issues.

In August 2012, Facebook was charged with cheating users that they told users they would

keep their private information, but they made public. Facebook agree to ask users before they

change user’s privacy preferences, and they should submit privacy audits. In American, it is

hard that users get data that Facebook collect from them, but in other countries, like Australia

and Ireland, the stringent law allow users access more data on Facebook. There is another

database, which has more than 60 billion photos in Facebook. This also makes big benefit

from advertising. In 2012, Facebook allow users control and see their actions on

advertisements.



QUESTION 1 Perform an ethical analysis of Facebook, what is the ethical dilemma presented by this

case?

Facebook helps Internet users stay connected with their friends, families, and colleagues. It

helps them discover and learn more about what is going on in the world around them. It helps

them express themselves by sharing their opinions, ideas, photos, and activities. However,

what the company actually does is to share tons of information about users with large multi

national advertisers to bring the benefit for it. Advertisers can engage with users based upon

the information shared by users such as age, gender, location, education, work history or

specific interests. Facebook does not have diverse array of hot new gadgets or a full inventory

of software for sale; instead, it has your personal information, and the information of

hundreds of millions of others with Facebook accounts. Facebook can serve ads using highly

specific details. For example, an Atlanta woman who posts that she has become engaged

might be offered an ad for a wedding photographer on her Facebook page.

In 2011, Facebook made $3.2 billion in advertising revenue, which constituted 85% of its

total revenue. That was good for Facebook, which launched its Initial Public Stock Offering

(IPO) in May 2012. However, this is not good news for Facebook user. Facebook is using

users online activity to develop a frighteningly accurate picture if user’s life. Facebook’s

partnership with the Department of Labor helps to connect job seekers and employers as well

as helped families find lost pets after natural disasters and allow active duty soldiers to stay in

touch with their families. These are the reasons why so many people are on Facebook.

However, Facebook’s goal is to get it users to share as much data as possible, because the

more Facebook knows about user, the more accurately it can serve relevant advertisement to

users. 13 million users have never adjusted Facebook’s privacy controls, which allow friends

using Facebook applications to unwittingly transfer user data to a third party without user’s

knowledge. The only option that user have is that Internet companies should be forced to ask

for permission before using user’s personal information and want the ability to opt out of

online tracking.

Ethical dilemma in this case study is Facebook monitors its subscribers and then sells the

information to advertisers and app developers.



QUESTION 2 What is the relationship of privacy to Facebook’s business model?

Talking privacy to Facebook is a bit ironic. Facebook’s entire business model is based on

aggregation and sharing user information. They give people a free social media platform to

use and in turn sell advertising and insights based on what they learn about user. Facebook

has massive capabilities to collect, store and analyze data. This allows Facebook to sell very

targeted advertising. Therefore, privacy is the Facebook business model.

Facebook states its regulations concerning to the rights and responsibilities derive from the

Facebook Principles, and govern the relationship with users and others who interact with

Facebook. The relevant statements include Privacy Policy, Payment Terms, Platform

Policies, Ads Guidelines, Promotion Guidelines, Claims of Intellectual Property

Infringement, Claims of Copyright Infringement, etc. All Facebook parties must comply with

this policies :

(i) Individual Privacy

(ii) Security of Data & Information

(iii) Accuracy of Data & Information

(iv) Data Quality

(v) Changing Nature of Business

(vi) Appropriate Information Use

(vii) Health & Safety

(viii) Copyright Laws

(ix) Advertising Policies

(x) Advanced privacy models



QUESTION 3

Describe the weaknesses of Facebook’s privacy policies and features. What people,

organization, and technology factors have contributed to those weaknesses?

The weakness behind Facebook’s privacy issues was a lack of communication between

Facebook and its users. Users were not aware that they were able to control what information

was being shared with external parties. In the introduction of the “news feed” was met with

opposition from users because they felt it was too invasive. Instead of only sharing status

updates the news feed shared additional information such as profile updates, adding new

friends, and adding new applications. FB incorrectly handling user information when

deleting their accounts also caused a backlash for Facebook. Facebook servers would keep

user information permanently, with the reasoning that it would be easier for the users to

reactivate their accounts if they chose to.

Facebook states its regulations concerning to the rights and responsibilities derive from the

Facebook Principles, and govern the relationship with users and others who interact with

Facebook. The relevant statements include Privacy Policy, Payment Terms, Platform

Policies, Ads Guidelines, Promotion Guidelines, Claims of Intellectual Property

Infringement, Claims of Copyright Infringement, etc. All Facebook parties must comply with

this policy. The company has encountered more than its fair share of controversy along its

path to success, mostly concerning its handling and usage of the extensive information it

collects from its users.

Management:

Facebook assumed it had the consent of users to share information about them that it

collected through the Beacon advertising service if they did not use the opt-out feature.

Facebook changed Beacon to be an “opt-in” service and gave users the ability to disable it

completely. The company utterly failed to grasp the extent to which the service violated its

users’ privacy as well as the uproar such a service was likely to cause. The same thing

occurred when Facebook introduced its News Feed feature.



Organization:

The personal information collected on the site represents a mother lode to advertisers, but one

that will remain largely untapped if Facebook users do not feel comfortable enough or have

sufficient incentive to share it. Users that attempted to delete their accounts were met with

resistance and often required outside assistance from watchdog groups.

Technology:

Privacy and user controls over the information granted to Facebook are the biggest concerns

most users have with the site. Facebook grossly miscalculated user privacy demands when it

launched the company’s Beacon advertising service because it shared information about users

that they had not explicitly intended or agreed to share. The service originally began as an

“opt-out” feature. Even after users opted-out, the service continued to send information to

Facebook regardless of whether or not the user was logged into Facebook at the time. The

company’s servers maintain copies of information indefinitely in accounts that have been

deactivated.



QUESTION 4 Will Facebook be able to have a successful business model without invading privacy?

Explain your answer. Are there any measures Facebook could take to make possible?

Facebook will not be able to have a successful business model without invading privacy.

Facebook currently is serving as much to advertise and reach people as it earns from those

advertisements. There are no fees that are to be paid to join Facebook or for its use, it all

seems like they threw in a few advertisements and hoped that its exposure would bring in

consumers. Obviously, the backbone of Facebook’s business model is advertisement. As a

result, Facebook needs more users data to customized its ads and indirectly invading

individual privacy. It is a critical challenge for Facebook to avoid offends user’s privacy.

Positive indicators:

i. It’s one of the largest social networking sites in the world and is growing.

ii. Facebook’s interface is simplistic and clean and tends to attract those looking for a crisp,

more structured social networking environment.

iii. It represents a unique opportunity for advertisers to reach highly targeted audiences

based on their demographic information and narrowly specified criteria.

iv. It represents a gold mine of opportunity because of the information the site has gathered

and because of the richness of the social networking environment.

v. Part of its status as a first-mover in the social networking marketplace helps attract more

users

Negative indicators:

i. It has created large numbers of hostile users because of its privacy violations

ii. Facebook’s own popularity will injure its chances to attract advertisers to its site,

claiming that the engaging and immersive environment that draws visitors to the site

makes users less likely to click on ads.

iii. Skeptics also believe that the current application system, where applications tend to

support one another via advertising through other applications without the aid of

extensive outside advertising, is an unsustainable model over the long term. So far, only

200 Facebook applications have attracted more than 10,000 users per day and 60 percent

failed to attract even 100 daily users.



iv. It remains to be seen whether or not the company can turn its heavy site traffic and trove

of personal information into new revenue streams.

Are there any measures Facebook could take to make this possible?

i. To alert all the members of Facebook with an electronic detailed letter stating that for

advertising purpose information that is submitted to your information pages will be used

by Facebook company.

ii. To give the users the options to either accepts or reject this offer in order to install a legal

standing that with the users of the site as well as protect the integrity of the company.

iii. To offer applications that could be put on their pages in terms of interactive games and

trivia, in return for allowing Facebook to access users account for advertising purposes.